Crumbs Cupcake Chain Files Bankruptcy With Bidder Lined Up

July 12 (Bloomberg) -- Crumbs Bake Shop Inc., the New York- based chain that went public three years ago at the peak of the cupcake craze, filed for bankruptcy after arranging a potential takeover with a venture including the maker of Dippin’ Dots ice cream.

The company, known for supersized cupcakes topping out at 1,090 calories, listed assets and debts of as much as $50 million each in a Chapter 11 filing yesterday in U.S. Bankruptcy Court in Newark, New Jersey. The chain, which in April had about 65 locations in 12 states and the District of Columbia, shut all of its stores July 7.

Marcus Lemonis LLC and Fischer Enterprises LLC yesterday announced they have formed a joint venture to provide financing and ultimately acquire the company’s assets, according to a statement. Marcus Lemonis and Fischer’s products include Wicked Good Cupcakes and Little Miss Muffin.

The Lemonis and Fischer offer would be a so-called stalking-horse, or lead, bid in a bankruptcy auction. The bidders have agreed to provide financing to the company during bankruptcy, pending court approval, according to a statement from Crumbs. They will evaluate the company’s retail plans “with the goal of reopening select locations or opening new locations,” according to the statement.

Crumbs said it hopes to complete the sale in 60 days.

Aeropostale Executive

Edward Slezak, a former Aeropostale Inc. executive, sought to reinvigorate Crumbs after taking over as chief executive officer in January. Following losses of about $23 million the past two fiscal years, Crumbs in April forged ties with BJ’s Wholesale Club, which included offering a croissant-doughnut hybrid dubbed the Crumbnut at the warehouse chain.

Slezak will stay with the company during the transition, according to the Crumbs statement. He said in the statement that the company will seek to expand its licensing and franchising business.

The company said in a June regulatory filing that Nasdaq was delisting its stock, which traded as high as $15 in 2011. The move was expected to trigger a default on $9.3 million in secured notes and $5.1 million in unsecured notes, Crumbs said.

Crumbs opened its first shop in Manhattan in 2003 and sold more than 50 varieties of cupcakes, including the “colossal,” a 6.5-inch cupcake that serves to six to eight people with a price tag of $42.

‘Breakout Company’

Crumbs was hailed as a “breakout company” by Inc. magazine in 2010 and became a publicly held business the following year through a merger with 57th Street General Acquisition Corp. The company, then run by Crumbs co-founder Jason Bauer, planned to open 200 locations in the top 15 markets by the end of this year.

The chain doubled to 70 locations from 35 in mid-2011, giving it 165 full-time employees and 655 part-time workers as of Dec. 31. The cupcake craze, meanwhile, cooled. Cake servings in restaurants dropped 1 percent in the 12 months ended in April, compared with an 8 percent gain three years earlier, according to market researcher NPD Group.

Among the largest unsecured creditors listed in court papers were IA Clarington Global Tactical Income fund with $1.83 million and Kitchener Investment Corp. with $1.5 million in notes. Both are based in Toronto.

The case is In re Crumbs Bake Shop Inc., 14-24287, U.S. Bankruptcy Court, District of New Jersey (Newark).

To contact the reporters on this story: Phil Milford in Wilmington, Delaware at pmilford@bloomberg.net; Dawn McCarty in Wilmington at dmccarty@bloomberg.net To contact the editors responsible for this story: Andrew Dunn at adunn8@bloomberg.net Peter Blumberg